USD looking for month end boost

US dollar bulls found more support in today’s US inflation and durables data than USD bears did, leading to a squaring off in Friday’s release of the revised Q4 GDP figures. US December headline CPI fell by 0.1% –the most since December 2009, core CPI maintained December’s 1.6% rise. The volatile durable goods series showed a 2.8% rebound in January after December’s 3.7% decline, with optimism stemming from orders excluding transportation items (+0.3%) and nondefense (+0.6%).

Friday’s US Q4 GDP is expected to show a downward revision to 2.0% from the initial release of 2.6%, with the all-important personal consumption expenditure seen unrevised at 4.3%. 1^st GDP revisions – also known as the preliminary report—are the most important as far as market impact due to the completion of the data as well as time relevance. Since the US dollar is not suffering from a growth complex, we do not expect the report to impact the current negatively unless there is a downside surprise, such as a print below 2.0% and a drop in PCE to below 4.0%

So far this year, the voting members of this year’s FOMC (San Francisco’s Fed Williams, Atlanta Fed’s Lockhart and Richmond Fed’s Lacker) have all spoken in favour of raising rates in June, while the Chicago Fed’s Evans is the only dovish voter who said the Fed “shouldn’t be raising rates before 2016 if things transpire as [he is] expecting”

UK Q4 GDP firm & unchanged

UK Q4 GDP remained unrevised at 0.5% on a quarter-on quarter-basis and 2.7% on a year-on-year basis. The growth was largely driven by the services sector, which was revised to 0.6% in the month ending in December, following a 0.1% rise and offsetting a sharp decline in business investment of 1.4% q/q, the biggest since Q2 2009, due to reduced spending in North Sea oil and gas fields.

The 2.7% increase in growth rise remains the highest since Q4 2007 and is in line with Bank of England’s forecasts.

GBPUSD failed to break above its 100-DMA after being dragged by the USD’s subsequent rally. Further pullback is seen supported around $1.5340, just above the 55-DMA.

Canada CPI fails to support loonie

Today’s higher than expected CPI figures from Canada (1.0% y/y vs exp 0.8% & prev 1/5%; 2.2% y/y in core vs exp 2.1%) led to a short-lived rally in the CAD until the delayed release of the US CPI and durables extended the loonie’s selloff, which transpired alongside the decline in oil.

Today’s CAD selloff is seen limited as the market further absorbs the reality that the Bank of Canada will refrain from cutting rates next week, following this week’s speech from BOC governor Poloz. Describing his preference to introduce more “two-way risk” in the market, Poloz is seeking to avoid an uninterrupted fall in the currency and semblance of a panicking central bank in the face of the oil decline, whose impact has yet to be fully determined.